Background briefing on the Inspection Panel Investigation in Cambodia

In the early 1990s the Cambodian government secretly awarded 32 logging concessions areas to private companies, many of them foreign-owned. Most of these firms went on to engage in illegal and unsustainable logging in pursuit of short-term profits. In a country in which a third of the population derive part of their income from the forests, this created inevitable tension between loggers and forest-dependent communities and there are many recorded cases of concessionaires abusing the rights of local inhabitants. The rationale for the concession system was a steady source of revenue that could be used for Cambodia’s development; yet between 1994 and 2000 the government collected only $92 million in timber royalties. Over the same period companies, politicians and the military made enormous profits through illegal logging.

The World Bank’s Forest Concession Management and Control Pilot Project (FCMCPP)

An Asian Development Bank review in 2000 described the concession regime as ‘a total system failure’. That same year however the Bank launched a $5 million Forest Concession Management and Control Pilot Project aimed at demonstrating that the concession system could work. The project focused on helping the concessionaires meet government requirements for new sustainable forest management plans (SFMPs) and environmental and social impact assessments (ESIAs) as a prerequisite for further logging. For the project to realise its objectives, the Bank needed the concession system and at least some of the companies to remain in place. It was in this context that the FCMCPP recommended the Cambodian government accept the SFMPs and ESIAs of six concessionaires in 2004. All six firms had broken the law or the terms of their contracts. Some were a front for the interests of relatives of senior officials.

The Inspection Panel Process

The Panel began investigating the FCMCPP in early 2005, and a full report of its findings will be publicly available next month. The Panel’s investigation followed a complaint by community representatives who perceived the project as promoting the interests of companies that had already damaged their livelihoods. The Panel’s findings do not condemn the focus on the concession system per se, but do conclude that the project ‘did not seem to take on the key objective of using the potential of forests to reduce poverty’. The Panel identifies other serious flaws in the project’s planning and implementation. Its report finds the Bank breached several of its own safeguard policies with regards to:

• Consultation in development of management plans. The project allowed concession companies to take charge of consultations with communities over the future of forest use. ‘The idea that the concession holders would manage community consultations or resource assessments is a very serious flaw, especially given that the forest concessions were exploiting a resource which rural poor people…relied upon for an important part of their livelihoods.’ • Environmental Assessments. The Bank overlooked the fact that areas of forest it identified as suitable for logging had high ecological value. ‘There is no doubt that the Prey Long forest merits consideration as a forest of high ecological value, and this should have been obvious to Bank Staff during both the design and implementation stages of the Project.’ • Indigenous People. Cambodia’s indigenous people mainly live in the north and northeastern parts of the country – the same areas which constitute the heart of Cambodia’s logging concession system. For a project affecting Indigenous People, Bank guidelines call for an Indigenous Peoples Development Plan to ensure they benefit from the investment. No such plans were produced for the FCMCPP. ‘Had they been developed, many of the problems that have afflicted the Project would have been recognised and might have been corrected.’ • Cultural and Spiritual Property. Bank guidelines seek to conserve, not eliminate areas of cultural importance. Yet the project left identification of areas of cultural and spiritual importance within the forest to unscrupulous concession companies. These areas included spirit forests and sites of archaeological importance. The Panel found this was ‘not consistent’ with Bank safeguards. • Social Impacts. The Panel found that the Bank’s failure to conduct a social assessment specific to this project seriously denigrated the ability of the bank to comply with its own operational policies. For example, there was no acknowledgement from the Bank that illegal resin tree harvesting by concession companies severely harmed the livelihoods of local populations. The Panel noted Bank Management were frequently made aware of the issue from many sources, concluding: ‘it is amply clear not only that the Bank should have been aware of the importance of resin tapping to forest dependent communities, and the harm that illegal cutting of resins was doing to those communities, but also that the Bank was aware of these issues.’ • Endorsement of sub-standard management plans for six concession companies. ‘The Panel considers that SFMPs and ESIAs were deficient in almost all regards from process to content.’

What Needs to Happen Next

• Remedial action in Cambodia i) The Bank should cancel the debt incurred by Cambodia under the FCMCPP. Cambodian citizens should not have to repay a $5 million debt from which – as a result of Bank negligence – they reap no benefits. ii) Bank staff responsible for the FCMCPP’s catalogue of errors must be held accountable. iii) The FCMCPP ended in June 2005. A year on Cambodia’s forest sector reform process is still in deadlock and the forests face a range of new threats. These include the government’s plans for a system of annual logging coupes - equivalent to a proliferation of smaller concessions; as well as the granting of economic land concessions – plantation projects used as a pretext for clear-cutting the forest. The Bank made a positive move in November 2005 when it wrote to the government withdrawing its backing of the logging concession system and its operators and advocating a range of alternative approaches to forest management with greater emphasis on the role of local communities. The Bank must now use its political influence and financial resources to ensure this more appropriate package of measures is implemented.

• Remedial action elsewhere in the Bank i) The Bank’s forestry focus is not limited only to Cambodia. It is also running a comparable project in the Democratic Republic of the Congo, which the Inspection Panel is currently investigating following a complaint by an indigenous community. A complete overhaul of the Bank’s approach to forests is needed to avoid the same harmful policies being replicated in other countries. ii) The Bank must re-think its anti-corruption policies. In an encouraging sign that the Bank is taking corruption more seriously, it has recently frozen three of its major projects in Cambodia after finding evidence of serious financial irregularities. However, while tackling corruption within Bank projects is an important first step, it represents only part of the solution. The Bank needs to make strengthening governance and combating corruption its overriding priority in all the countries in which it works. Without this change of emphasis, the potential benefits of Bank investment in borrower countries affected by high levels of corruption will continue to be negated.